Saturday, April 15, 2017

Trump and the Ex-Im Bank

President Donald Trump plans to revive the hobbled Export-Import Bank of the United States, his office said, a victory for American manufacturers like Boeing and General Electric, which have overseas customers that use the agency's government-backed loans to purchase their products ... The Export-Import Bank, an independent government agency, provides loans to foreign entities that enable them to purchase American-made goods. For example, it has been used by foreign airlines to purchase planes from Boeing and farmers in developing nations to acquire equipment.

Trump has certainly been malleable on many of his campaign positions. Old Trump called these loan guarantees corporate welfare and a waste of taxpayer money. So why is New Trump now in favor of these loan guarantees?

Trump's about-face on the export bank comes after meeting on Tuesday with former Boeing Chief Executive Officer Jim McNerney, who left the company last year but oversaw the corporation's aggressive lobbying effort in support of the bank in 2015. Trump also met at the White House on Feb. 23 with GE CEO Jeff Immelt and Caterpillar CEO Mark Sutton, both vocal supporters of the bank.

Before one jumps on the Club for Growth screaming of corporate welfare, is there a possible rationale for Trump’s new position. We can see this move as a form of trade policy where this program provides a subsidy to exports. I guess one could also defend that Destination Based Cash Flow Tax as a form of trade policy acting as a tax on imports and a subsidy for exports. Of course some economists would argue that such trade policy would not increase overall net exports as the primary effect would be to appreciate the dollar. Two proponents of the Destination Based Cash Flow Tax write:

Border adjustments do not distort trade, as exchange rates should react immediately to offset the initial impact of these adjustments.

Now if this is true – it also follows that an export subsidy for Boeing would hurt import demand. In other words, old Trump may have been correct. So why is new Trump pushing something that is a violation of WTO rules? Of course maybe that is the entire point – Trump strikes me as a person who wants to violate WTO rules just for the fun of it.